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For those of you that don’t know, I just recently moved from a condo into a house. As a Realtor, you would think I have the timeline of when things are suppose to happen pretty well memorized. So you can imagine my surprise this past week when I get this official-looking letter in the mail with instructions on how to order an official copy of the deed to my property.

I must’ve flipped the letter over two or three times (it was front and back) before I realized this was just some shifty person’s way of making a quick buck. You see, here’s a perfect example of someone (or some official-looking company/LLC in this case) that thought they could get involved in a real estate transaction that didn’t involve them… and do so after the transaction was done!

This company prints up cool-looking, official-like letters and mails them out to everyone that buys property in a given area, which is easy to do since these transactions are of public record and are even printed in the newspaper. With many newspapers going online, one could do this from anywhere. They tell you in their letter that if you haven’t yet received the certified copy of the deed to your house to respond to this letter and they will send it to you.

The problem with this you ask?! Most people buy homes with a loan… a mortgage. Some mortgage companies do not send you a copy of the deed or do so well after the transaction has been completed. The original, signed deed is filed with the county auditor’s office and anyone can go into the county auditor’s office and review those documents at any time. For a fee you can have them print you a copy. In some technology-savvy counties you can just do this online.

So when Joe Homeowner goes back into his house and starts hunting for his certified copy of his deed, he realizes he doesn’t have one. He then responds to this dressed up advertisement and pays them an ungodly sum (I think they wanted $67.50 or some odd but specific amount from me) plus whatever fee the county charges them - the company - to get the copy of the deed plus postage and handling to send it to you.

Oh yeah, and one more thing. In tiny, tiny print at the bottom of the document they disclose that they are not a government department or affiliation and that many of these deeds are available directly from the issuing agency. Nevermind the fact that they named their company something official sounding and mailed out all these letters asking you to order your certified copy of your deed.

Save your money. Do one of the following to track down a copy of your deed for your records: call your mortgage company and ask them to send you a copy, or the title agency/closing agency/attorney that handled the transaction, or call the county auditor’s office directly to get a copy if you want one. Don’t panic because you don’t have a copy, as long as it’s filed with the county you are o.k. But do make sure it’s filed with the county. And do make sure you get a copy from either the mortgage company, the title agency, or the county directly. Save it just in case there is somehow a mixup or glitch in the county’s records and your property is mistaken for another, etc. Which brings up another good point: Buy Title Insurance. There will be an entirely separate blog post about title insurance due to the amount of things that we can discuss on that.

My bank’s title agency did in fact send me a copy of my deed but there was a significant lag between when it was filed with the county and when I received it. Therefore, if this company gets these letters out quick enough, the unsuspecting homeowner could purchase it, only to receive it from this company and the bank or title agency later. I’m sorry I don’t have the name of the company, etc. to report. I was so disgusted when I read the letter I ripped it in half and tossed it in the garbage. I will keep my eye out for others like it though and report them on this blog when I come across them.

As always, I welcome your comments and feedback…

This news will not come across as anything shocking to those that follow the real estate market. Existing home sales are down in 41 out of the 50 states for the second quarter of 2007 (April through June).

The article published on Yahoo! does indicate some local markets saw price increases, but these were more isolated instances - such as the 4.1% increase in sales for Iowa and the 2.9% gain in North Dakota. (Adobe PDF version of the Yahoo! article). The subprime mortgage woes and tighter lending practices are certainly having an added affect on an already soft market. The markets will continue to be slow if the Fed decides to lower interest rates and the few buyers that are out in the marketplace right now might start to hold off on making a purchase in hopes of getting a lower interest rate on their mortgages.

The Cincinnati and Dayton, Ohio markets continue to be stagnant. While we’re not seeing the huge declines in price that other areas of the country are seeing, more homes are taking longer to sell and prices have landed softly as opposed to rapid decreases.

As always, I welcome your comments and feedback…

The housing slump has undoubtedly put some home sellers in a bind. And even those not currently in the market to buy or sell can be affected by a rise in mortgage interest rates, just ask the homeowners with Interest-only mortgages or those with ARMs (see the last blog posting from yesterday, July 26th for more discussion on these types of loans).

The overall market was sent reeling again yesterday amid reports that the housing sector only continues to get much worse. The Dow fell more than 300 points yesterday (at one point being down more than 400) mainly because of investors jittery over the slowing housing market and therefore perceived lack of consumer confidence.

Think about this: everyone knows that real estate is in a slump right now, yet not many buyers are using this opportunity as a time to buy. It’s easily understandable that buyers are worried. They don’t want to buy a house only to see the prices fall further. But it’s a dangerous game to play when you try to predict the bottom - this is true in housing just as it is in stocks. More homebuilders and mortgage companies are coming out and publicly saying that the bottom (which was expected in early 2008) may now even be extended into 2009! Even companies like Whirlpool are blaming the housing market on slowing sales (see my July 22nd blog entry about Whirlpool’s earnings announcement).

It seems the media only fuels the consumer sentiment in either direction. When the Dow was breaking 14,000 just a week and a half ago on July 17th, that’s all you could read about it seems. Then investors started pulling money out. And the bad news came with the existing home sales, quickly followed by similar bad news on the new construction homes. It all adds up to investors feeling too uncertain about the future and seeing the markets at or near all-time highs and deciding now is the time to take some profits.

Given the current skid in the local real estate market as described in the Cincinnati Enquirer on July 25th, it will be interesting to see if investors start to look for buying opportunities in real estate now that the real estate market has softened and the stock market is beginning to look over priced. (Adobe PDF version of the Cincinnati Enquirer article).

Even if investors don’t pull money from stocks and pour it into buying land and homes, the investors can help the real estate economy by moving money from stocks to bonds. Putting more money in Treasuries and mortgage-backed securities will help balance out the load and make banks more happy to write more mortgages.

How so? you ask… Well, since there will be investors pushing the price of the Treasuries up through the additional purchasing, they yield on the Treasuries will fall and the mortgage rates will start to move downward as it will cost the banks less to borrow money… therefore driving down the mortgage rates. Meanwhile investors, if they are also buying mortgage-backed securities, will add liquidity to the market thus giving banks added funds to loan out in the form of mortgages. As if this wasn’t just the icing on the cake, the banks existing loan portfolios will be worth more to investors as their existing loans will carry higher interest rates than the new loans they are writing at the lower rates. So the bank benefits by writing new loans at lower rates and selling the old loans with the higher rates to investors.

Let’s hope the real estate market and the stock market both rebound! However it’s more likely that only one will bouce back sooner than the other… and my bets are on the stock market right now! Real estate is a much longer-term play than the stocks and I think it will therefore have a longer tail end to the slowdown than a slump in the stock market would. As always, I welcome your comments and feedback…

In yesterday’s online edition of The Cincinnati Enquirer there was a story about the various local real estate markets throughout the U.S. that are most susceptible to seeing their markets collapse. Cincinnati ranked # 8 in the nation for having the riskiest housing market according to Forbes magazine based on the extent to which most homeowners are leveraged (via the loan to value ratio).

The article points out that Cincinnati has not only a higher than average number of adjustable rate mortgages (ARMs) in use in its market but it also has the 5th highest mortgage loan to home value amount in the 40 largest metropolitan markets throughout the country. The combination of the greater use of ARMs and the more-leveraged homeowner could make it difficult for the area to regain any momentum in improving local sales of new and existing homes.

Although I see some validity in Forbes‘ study, there is more to consider than just how much people borrow to buy a home and how many of those people use ARMs to do so. In fact, a better indicator than ARMs might be a study that considers the number of people using Interest Only loans to buy properties. These are the individuals that stand to be squeezed the hardest as interest rates climb.

ARMs come in varying terms - say 3 year ARM, 5 year ARM, 7 year ARM, and so forth. Therefore you have the number of people facing an interest rate increase with ARMs spread out over several years. Also, there is a max. amount that an ARM can increase in any given year (usually 2% increase in the interest rate) as well as a max. increase for the life of the loan. If someone had taken out a 5 year ARM in 2002 that was due to increase this year, they would most likely face a 2% increase in interest rate.

Considering interest rates in 2002 were around the 40 year lows, these ARMs may have even been done at 4% or even less! So to think that the market is going to get destroyed by people losing their shirts when the interest rates on their loans is going up from 4% to 6%… well, let’s just say I’m not expecting to trade in my real estate license for an auctioneer’s license in the near future. Cincinnati is a pretty modest market, with the overall appreciation over the past few years more closely resembling an inflation factor of about 3%. We certainly didn’t see the run up in prices that some markets did, like Miami, FL that topped the Forbes list for the most risky market in the U.S.

I don’t have hard figures on this, but just knowing the culture of this city leads me to think the real estate market here is more stable. A lot of Cincinnatians, especially those on the west side, tend to stay in the city for long periods of time… many are even “lifers”. While this can make it difficult to come into town and adapt, it does create stability in the marketplace. Also, the city is not exactly tied to a volatile industry (i.e. high tech in Silicon Valley circa 2000 & 2001). This city is home to some staple consumer goods that some would even say are recession proof… Procter & Gamble comes to mind first thing, as does the grocery chain Krogers. There are also a lot of steady, conservative financial companies… like insurer’s Great American, Western Southern, Ohio Casualty, Cincinnati Financial, and Union Central. Fifth Third Bank is headquartered here and the Federal Reserve has an arm of the Cleveland branch in downtown as well. It would be interesting to see the proportion of people who are born here and also stay here after college or well into their careers (home buying years).

In case the link to the above Cincinnati Enquirer doesn’t work, I am attaching a copy of the article in Adobe PDF format that you can read in your Internet browser or download to your desktop. For more information on companies with headquarters or a strong presence in the Greater Cincinnati area, please visit CincinnatiUSA.org

As always, I welcome your comments and feedback…

Yesterday I went on at length about how real estate in Ohio could be adversely affected by a rise in foreclosures. While yesterday’s comments are certainly true, I think it’s best to present a balanced picture. I can’t preach gloom and doom when the climate in Cincinnati and Dayton, Ohio is far better than other parts of the country where real estate was once hot as little as a year or two ago.

In fact, the local market is even doing better than northeast Ohio (namely Cleveland and Youngstown, Ohio areas), where it was noted yesterday that Cleveland leads the nations in the foreclosure rate based on zip code.

Just as CNNMoney.com has ranked the highest 500 zip codes for foreclosure activity, Money Magazine has published its annual report of top 100 cities to live in. Two greater Cincinnati and Dayton towns made the list: Mason, Ohio and Beavercreek, Ohio. Mason is a northeast suburb of Cincinnati while Beavercreak is a southeast suburb of Dayton. Mason came in ranking 81 out of 100 while Beavercreek was close behind at # 84.

Certainly these two areas are deserving of their inclusion in the list. So while Ohio may be one of the worst states for foreclosure activity, there remains a relatively stable economy with modest job growth and a decent real estate market given the overall trend nationwide. Much of Ohio has seen less decrease in price than other major markets, especially those hit hardest such as California and Florida.

In Ohio I expect to see a soft landing rather than a complete crash.

As always, I welcome your comments and feedback…

CNN.com, in partnership with Money magazine (via the CNNMoney website), recently published a list of the 500 top foreclosure areas based on zip code and the number of foreclosures in those zip codes. Not surprisingly there were several Ohio cities that made the list. It’s been no secret that Ohio is one of the nation’s leaders in foreclosures. Cleveland, Ohio had the most foreclosures in the nation.

Also on the list, and hitting closer to home in the Cincinnati and Dayton, Ohio real estate markets, was Middletown, Ohio zip code 45044. The rise in foreclosures in this zip code can be attributed to the year-long strike that the AK Steel (NYSE:AKS) union workers went through in their contract negotiations. Many of those employees faced a difficult year in 2006 with very little income and the fixed monthly bills associated with supporting a family.

While the local real estate markets throughout Ohio have not seen a tremendous decrease in prices, the increased level of foreclosures is worrysome because it will undoubtedly affect what consumers in the state will pay for a mortgage. If banks have a higher default rate in a particular state, they will most likely want to charge higher rates and/or have stricter requirements for qualifying for a mortgage in that state.

Higher mortgage costs mean less buying power for Ohioans. It also may drive some residents out of the market that would otherwise qualify for a loan. Some residents that live near a state border, such as those in Cincinnati that live near northern Kentucky, may even find it beneficial to move to the other side of the river to save money on a loan and therefore enable themselves to purchase more house for their money (lower interest = lower monthly house payment at every sales price level!)… I don’t think we’re to that point yet, the mortgage rates are still much more closely tied to the T-Bill and interest rates as a whole. But it’s worth noting.

The banks won’t participate in any kind of rate setting practice that could be construed as red-lining, an illegal practice where banks set higher rates in a particular area - historically done to subversively oppress minority homebuyers. But if they reduce their appetite for loans across the board for the entire state, the price for a loan will be higher given a fixed level of demand for the mortgage product. Likewise, if the rates charged are increased uniformly across the entire state, it would not be considered red-lining; rather, just an increased cost of doing business in that particular state. The banks would be charging those borrowers who actually pay their bills more to subsidize those who default. (Nothing like penalizing those people who are ACTUALLY YOUR GOOD CUSTOMERS!!!) But that’s no different than what happens when you buy a car or use your credit cards. The interest rate charged reflects a certain default rate (risk) given your credit score.

The rise in foreclosures also brings about an increase in supply of homes on the market as banks look to re-sell the foreclosed property to recoup the outstanding loans. These homes often sell at discounts as homeowners who are in default are less likely than those in good standing to maintain and improve their home. Think about it, would you take your car to get an oil change in you knew the repo man was cruising the block and coming to get it?! No, you wouldn’t spend money fixing something if you weren’t able to pay to keep it anyway!

Hopefully Ohio is only suffering a short-term setback in the way of foreclosures. Only time will tell. In the meantime we just have to pay the monthly mortgage and hope our neighbors and fellow Ohioans are able to do the same. As always, I welcome your comments and feedback…

Well, I’m filing this under my Real Estate category for lack of a better place to put it. If you live in or around Cincinnati, Ohio (or really a lot of places throughout the midwest… even California out west) you’re experiencing near drought conditions with far below average levels of rainfall.

With the lack of rain and hot summer weather, the ground has become hard as rock and there are the cracks and crevices forming in the ground. My neighbor filled me in on something that the person who owned my house before me did when the ground is this dry and we do not get rain.

The previous owner of my house would go out and water the ground right next to the house… say within a foot or two and enough to get soil nice and moist so it would sink in a couple of feet. A nice dose of water every few days or so, usually applied early in the morning or late at night so it would sink in and not evaporate away during the hazy sunny daytime hours. Doing this (the previous owner alleges) helped keep the soil from cracking and kept some moisture in the ground so the soil would stay packed together near the foundation of the house.

So why do this? Well, when you get a heavy down pour of rain, as is often the case with many summer storms, the ground doesn’t act as a funnel or drain sending all that rain down through the cracked soil and up against the foundation of your house. Essentially, by watering the ground on a somewhat regular basis, that steady amount of moisture has kept the soil packed together and without the large cracks near the foundation the water will take the path of least resistance away from the house (where the ground has more severe cracks and is still dry so it can absorb more).

Now, I don’t know if this is an urban legend or if there is some truth to it, but I live in a house that was built in 1943 and shows no signs of ever flooding (knock on wood). I can’t recommend doing this or swearing by it, but I see the logic in it and I throw this bit of information out there for others who might be interested in trying something like this with their gardening (perhaps you have some plants around your house that can use some extra watering) or I’m definitely interested in hearing from people that may know whether or not there is some truth to this and/or have tried it.

As always, I welcome your comments and feedback…

If you own a home in Ohio and you’re 65 (or turning 65 in 2007), it’s a good year for you. Ohio is expanding its eligibility for the Homestead exemption on your real estate taxes. This benefit, which was already in place but with certain income restrictions, has been expanded to allow all homeowners age 65 and older as of this year, as well as all surviving spouses that are 59 1/2 or older regardless of income.

The first $25,000 of a home’s value is no longer being taxed for these individuals. Let me just take a moment and say what a great way to help our seniors in this state. Many of these people are on fixed incomes and yet they face the same rising costs - like gasoline - that the rest of us do!

The Cincinnati Enquirer posted a nice article on this expanded tax benefit.

As the Enquirer article points out, if you qualify you won’t just automatically see the tax benefit next time you get the real estate tax bill in the mail. You must contact your local county auditor’s office to request the homestead exemption and you will have to fill out an application, which is simply so the auditor can keep track of how many people & properties qualify for this credit.

Hopefully we will see more relief coming in the way of real estate taxes to help make the cost of homeownership more affordable and therefore bring more buyers into the market. It’s not just about bringing more buyers into a market where there are a larger number of sellers. That would be a nice economic benefit for the state, but it also helps the local communities’ quality of life when people own their homes as residents take more pride in their homes, neighborhoods, schools, communities, and so forth.

As always, I welcome your feedback and comments…

If you’ve ever purchased a home before you’ve probably taken out a loan (mortgage) to finance at least part of the purchase. In doing so you were probably told that the bank would order an appraisal of the property. The purpose of the appraisal is to make sure the property is not being purchased for far more than its true market value, thus endangering the bank’s ability to sell the property should you, the borrower, not be able to repay the loan. On the other hand, the bank would not care in the least bit if the property was worth more than the sale price, or in cases where there is a significant downpayment the bank would not care to any greater degree than the amount that they had loaned you.

While it may sound like the appraisal is an excellent tool to help protect you, the buyer, there are several problems with how the appraisal process works that I want to alert you to:

1. The appraiser works for the bank, not you. I find it rather funny that you don’t see appraisers assigning a home value that is ever higher than the sale price. This is a flaw that assumes the market price (the price that you the buyer have agreed to pay to purchase the home) is always the correct price.

It therefore ignores the fact that sometimes people pay too much or sellers charge too little for the property. It assumes the market is ALWAYS correct in the price of a property and that every transaction is at arms-length. If the sellers are not very sophisticated and the buyers realize that the property has a greater value than is being sold for, the sale price does not truly reflect what the appraised value should be.

Why is this problem important to you as a buyer? If the bank requires you to put down say 10% or 20% in order to qualify for the loan… and let’s say the contract sale price states $100,000 - you would need either $10,000 or $20,000 for a downpayment. Let’s stick with the 10% for simplicity sake. If the property’s true value is believed to be $125,000 and you have a contract to purchase it at $100,000 then you already have $25,000 of equity the day that the sale of the property changes hands (closes). $25,000 is 20% equity in a $125,000 property, but the bank is requiring you to tie up an additional $20,000 of your own money as a downpayment. If you meet the equity requirement you shouldn’t be forced to tie up additional money as equity in the property.

2. The appraiser knows the contract sale price and terms before doing the appraisal. This builds off of the previous problem… in # 1 above we saw that the appraisal typically does not come in higher than the sale price, but rather right at the sale price. You will NEVER be able to convince me that the appraiser is being objective in his or her reporting of the property value if the contract sale price and terms are known in advance of doing the appraisal.

To truly be objective, the appraiser should not be told the contract terms and price and be left to find comparable properties and recent sales as well as calculating other methods of value such as the income approach for rental/income producing properties and construction replacement costs for buildings that are being used for other purposes than they were orginally constructed.

3. The appraisal is only the opinion of ONE person. If I went out to buy a car, or to buy insurance, or even to buy groceries… I am going to look around and shop around. For a car, I am going to visit multiple dealerships, use multiple car valuation sources (like NADA, Kelly Blue Book, Edmonds, etc) and same is true for insurance… I am going to get multiple opinions before I make the purchase. With an appraisal you are getting ONE person’s estimate of the property’s value. To be truly objective you should take # 2 above, the appraiser not knowing the sale price and terms… and add to it, by having more than one appraiser calculate a value and then compare the two (or more) appraisers’ reports and how they came up with their values.

I know this may seem like I am taking a small portion of the home buying process, but people rely on these appraisals to keep them from being taken advantage of and from getting in over their heads. This is far more common place in refinances, where it’s just you and the bank… no seller involved. The bank has every incentive to use an appraiser that is more likely to inflate the value in a refinancing situation so that they can make you a bigger loan during the refinancing process… a bigger loan that might translate into you never being able to sell the house or property and recoup your loan amount.

Yahoo! Finance recently posted an article about this very topic and I thought it was appropriate to end this blog post with a link to the article. I think as loan interest rates go up and therefore adjustable rate mortgages (referred to as ARMs or ARM loans) become more expensive, you will see more people going into foreclosure on their home loans and this issue will be receiving more attention in the media and by state legislatures and Congress. The Yahoo! Finance article is entitled Appraiser Coercion Fuels Mortgage Fraud.

When you go to buy a property you need a certain level of trust with your Realtor, your lender, and you need to feel comfortable that you are getting a good value for your money. If you don’t feel comfortable, by all means walk away from the deal before you get locked into a contract… or hire your own independent appraiser before you agree to a price or any other contract terms. A typical appraisal won’t cost you more than $200 to $400 and when you are thinking of spending hundreds of thousands of dollars, that $200 independent appraisal could very easily save you far more in the future.

As always, I welcome your comments and feedback…

If the overall real estate market is in a slump, should this be considered a time to BUY stock in real estate companies and Real Estate Investment Trusts (REITs)?!

The quick answer is no, or probably better said… not necessarily. But let’s examine why that is…

1. There are many types of real estate companies out there. Some focus primarily on office space and commercial properties. Others might focus on retail space such as malls, or even hotels and hospitality locations. Not all of these areas are in a funk like the residential market. For instance, since the collapse of the World Trade Centers in New York there has been an office space shortage in Manhattan while there is a surplus of office space in other cities. So just because there is a slow down in many areas for residential real estate, those same areas could be quite healthy for commercial properties, etc.

Also, some REITs are diversified or focus on mortgage products. Those stocks that are tied more to mortgages are more dependent upon the movement of key interest rates.

A quick side note on what a REIT is… this is essentially a real estate company that has complied with an IRS rule to designate the company as being primarily engaged in the real estate business and furthermore pays out 90% or more of its earnings in the form of dividends to its owners. You can read a more detailed answer in the Investopedia.com article entitled What are REITs?

2. Real Estate is a long-term investment for most individuals… well the same holds true for most companies. Not many (if any at all!) of the companies that are traded publicly are into “flipping” properties. Most companies hold these properties for many years to make money on the rental income. The transaction costs of buying and selling real estate makes it cost prohibitive to buy and sell property on a frequent basis (much like the transaction costs to your stock broker makes it prohibitive to trade stocks rapidly).

Many of these real estate companies have been buying property before, during, and even after the market’s ascent and then into its decline. The effect of such buying can be similar to the concept of dollar cost averaging the purchase of stock. So to think that these companies are at a low, well, we go back to the first item and say it depends on what type of real estate they are involved in and how well that sector is doing. Various companies will have different strategic methods of operation, even within the same industry, leaving some companies in better position than others to take advantage of a soft market (acquisition/buying opportunity) or better guarded against a slowing real estate market.

3. As interest rates climb, the real estate companies’ cost to borrow money increases limiting the amount of real estate investment the companies can do as well as limiting the number of buyers they would have for their existing owned properties. Another excellent article from Investopedia.com points out that there is a strong correlation (link) between the falling stock price of a real estate investment trust (REIT) and a simultaneous increase in key interest rates. The article is titled The Impact of Interest Rates on Real Estate Investment Trusts

The bottom line here is this… before you decide to purchase a real estate-based stock or some stock in a real estate investment trust, do your homework on what type of real estate the company is involved in. Look to see how the company’s stock will be impacted by changes in the interest rates or how that company’s peers are doing in comparison. It pays to find the “best of breed” as Mad Money tv show host and TheStreet.com co-founder Jim Kramer would say… and this is true regardless what the housing market or any other type of real estate market is doing.

As always, I welcome your comments and feedback…